Who is Accountable for Employee Productivity?
HR just has one job to do!
Background
I’ve been penning my thoughts around HR Analytics for some time now. My amazing business partner (Sally Taher) and I have been involved in a decade of consulting work to optimise HR data capabilities, having set up HR Analytics practices for several organisations in Singapore and Indonesia. Despite all the headline support, the HR community continues to struggle to upgrade their data and digital capabilities. I’ve, in fact, written an earlier article bemoaning that HR is the weakest link in any organisation today.
In a recent lunch with my friend Dr. Fermin Diaz (a lifelong HR thought leader and HR Analytics advocate), he opined that HR really only has one KPI to achieve — as a function, they have to improve employee productivity year over year. Brilliant! I love the simplicity and succinctness of the point.
And so I’m dedicating my 36th weekly article to further unpacking what it means for HR to focus on employee productivity.
(I write a weekly series of articles where I call out bad thinking and bad practices in data analytics / data science which you can find here.)
Employee Productivity
What exactly is employee productivity? How is it defined, and how is it measured? Without these 2 considerations, we cannot have any meaningful conversations around improving it.
Let’s first start with the standard definition for Productivity. Productivity is defined as efficiently turning input into output. How fast is the process? How costly is the process? In classical manufacturing terms, productivity is the amount of output you get for the amount of input you put in. By dividing output over input, you get a productivity ratio. The trick here is obviously to define comparable measures of inputs and outputs so that the derived ratio makes sense.
The human resource (HR) function defines employee productivity as the amount of value generated by an individual employee within a specified period of time. Value?!? IBM HR defines it as how efficiently and effectively a worker or group of workers contribute to accomplishing organisational goals. Some blogs discuss HR using surveys (which I hate) to measure task completion. Notice the use of broad and obtuse language around the definition(s). This only underscores my suspicious that HR hasn’t got a clue about employee productivity!
Inputs & Outputs
Time should be the common denominator. Literature suggests that we can define employee productivity based on the amount of quality-normalised output per time spent by the employee. The time spent by the employee can be further normalised by directly associating it with the cost of the employee’s compensation. Human beings understand this intrinsic relationship well — if you don’t give them a raise, they will cut back on their time commitment to the job to ‘equalise’ their perceived paid-for-productivity.
So we have a common input — employee time-adjusted compensation cost. For the output, we need to work towards a similar definition. There is literature to suggest that task completion may be the most equitable way to measure output. The complication would be the definition of a task. Tasks are what you do, and not what you achieve. However, in roles where the outcomes are measurable, we can proxy tasks with outcome. For example, in sales — measuring dollar achievements would be a good proxy for the collective myriad of tasks needed to achieve that outcome. In roles where the outcomes are less measurable, we would then have to spend the effort to define key tasks that are considered critical to being successful in the role. For example, the role of a product manager can be deconstructed into the key tasks of conducting market research, doing competitive assessment, getting user feedback, developing new product features, conducting assurance testing, etc. One then needs to have a means to track the time spent on each task to achieve completion. We could also set time-allocation benchmarks for each task against which we can measure productivity improvements.
The same notion of task applies to teams and functions. A productive team completes their combined (defined) tasks efficiently and effectively.
The Role of HR
This brings us back to the key crux of this article: that HR’s only KPI, as a function, is to increase employee productivity. To that end, HR must demonstrate that all the activities it engages in either:
- Reduce overall input compensation cost — e.g. hiring cheaper talent with equivalent skills.
- Reduce time spent on task — e.g. increasing digital competency to leverage modern work tools.
- Reduce non-task time — e.g. reducing idle time by improving onboarding.
- Increase quality of task output — e.g. assigning the right talent to the task.
- Reduces the risk of declining productivity — e.g. identifying and motivating employees who are critical resources.
When viewed in this perspective, annual increments and bonuses become suspect in their ability to increase productivity, as my aforementioned HR friend Fermin, had observed and new research bears out. Similarly, when viewed in this perspective, managing towards a target employee attrition rate may have little impact on improving employee productivity if the replacement cost is actually going to be cheaper.
Similarly, when HR engages in talent identification and development, it needs to align its intentions. Is the exercise motivated by retention which may not necessarily translate into higher productivity? Or is it motivated by productivity where the identified talent can be made to produce much more with a marginal increase in input cost?
Conclusion
If one looks at a typical performance scorecard of HR as a function, it enumerates training rate, retention rate, employee experience, etc. There are no metrics to make HR directly accountable for improving employee productivity. Having that singular focus would dramatically change the conversation and analytics investments in HR, moving it from ‘soft’ metrics to P&L co-ownership. It’s about time organisations encourage this shift.
